Equity markets in Europe lost ground this week as governments increasingly tightened social restrictions in a bid to contain a surge in coronavirus cases. China, which has effectively controlled the virus outbreak, with life increasingly returning to normal, had a very solid week for domestic ‘A’ shares. The latest data on imports into China for September exceeded expectations, rising by the fastest rate this year, as the economic recovery has led to a rise in demand for overseas goods.
US Equity markets however finished slightly higher as investors continue to hope for a fiscal stimulus package. On the vaccine front, some trials have been paused due to health concerns, and Pfizer has filed an emergency-use plan for the end of November. Polls were also showing a clear lead for Joe Biden over President Trump. Although corporate tax increases are a threat under Joe Biden, it is thought that this is unlikely until 2022 or 2023 at the earliest, whilst fiscal stimulus is expected to increase significantly through infrastructure expenditure.
Boris Johnson warned the UK to prepare for a ‘no deal’ Brexit following little progress in negotiations with the EU. Sterling has not moved materially in response to the statement, whilst markets continue to be uncertain as to whether this is posturing or a genuine threat. From an equity perspective, UK equities have traded at a discount to international market ever since the vote to leave back in 2016, with most of the pain expected to be felt in Sterling should a no-deal come to pass.
US equities are up 0.2%, whilst US technology stocks rallied by 1.2%. European equities are down by 1.1%, but rallying hard after the selloff on Thursday, on the back of positive results from companies and brighter forward guidance, despite the tighter restrictions being introduced across the continent. UK equities lost 1.5% over the week, as Prime Minister Boris Johnson introduced a three-tier coronavirus alert system, as social restrictions increasingly spread across the country in response to a surge in the virus. The Japanese stock market fell 1.8%, as big exporting stocks reacted to the increase in coronavirus cases across Europe and the US. The Australian market rose 1.2% over the week after the Reserve Bank of Australia hinted at an interest rate cut. Emerging markets fell 0.2%, however, within that, Chinese domestic ‘A’ shares rose 2.0% as the economic recovery continued.
Developed market government bond yields, which move inversely to price, fell this week on the worsening outlook for virus cases. The 10-year yield on US Treasuries fell to 0.73%, German Bunds fell to minus 0.63% and UK Gilts 0.16%. Similarly, crude oil, copper and iron ore prices all fell over the week on the same concerns.
Australian markets rallied this week after the Reserve Bank of Australia hinted at a potential interest rate cut to provide further monetary easing support for the economy. However, gains were diminished on the last trading day, following worsening global sentiment over new virus cases in both Europe and the US. Most sectors finished in negative territory on Friday alone, with notable laggards including mining which finished in the red as iron ore prices declined on oversupply concerns. Rio Tinto dropped by almost 1% after its September update reported lower production and sales of iron ore.
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